Overview

Social Finance Nominee-RBC Investing for Impact Fund

As I chat with Sandra Odendahl, Head of the RBC Social Finance Initiative, I can see downtown Toronto spread out in the massive wall-to-wall window behind her. It’s a good reminder of RBC’s place—they are leaders in the financial sector—and of the fact that the resources RBC can bring to bear dwarf almost everyone else’s. This, however, is both a challenge and an opportunity, and is key to understanding RBC’s involvement in impact investing.

As one of the biggest organizations in the country, it was only natural that RBC’s employees would be thinking about the company’s role in promoting sustainability and combining financial acumen to drive social value. Employees from across the organization have had pet projects, from seriously considering socially responsible investing in 2004 to wondering about mission-related investing in 2007. There has been a tradition of corporate philanthropy as well, with RBC Foundation devoting a percentage of the bank’s profits toward charitable and community causes ($98 million in 2011 alone).

How it all began

Events in 2011 led to a global conversation about the role of banks in society. The Occupy movement put pressure on institutions to demonstrate that they had purpose beyond finance and economics—they had a social purpose as well.

These events captured the interest of employees and stakeholders at RBC and led to internal presentations on the impact investing market. These presentations heightened interest within the organization, and there was soon interest at the top as well, from CEO Gordon Nixon and RBC’s board of directors.

“They were saying: ‘What should we be doing to make it more clear that we do care?’” explains Sandra.

The reality of government debt and unanswered questions about public funding for education and social services also made it clear that there was a need to try something new. In a report to the board, RBC explored the feasibility of pursuing social finance. The report’s findings led the board to approve an initiative in social finance.

In January 2012, RBC announced a $20 million commitment to impact investing—the first made by any of the Big Five commercial banks in Canada—as well as a clear statement of intent. The bank allocated $10 million for making impact investments and a further $10 million from the RBC Foundation was invested in the Phillips, Hager & North Community Values Funds.

This was a big step forward for impact investing and social finance in Canada, and was recognized as such. But not everyone was cheering. What exactly was RBC going to do? What was their investment strategy? Who were they going to invest in? Had they moved too quickly?

Big decisions, big responsibilities

“It was a rapid turnaround, but it was just to decide that we were going to do it [impact investing]. Since then we’ve been building the whole framework… the strategy, program, direction,” says Sandra. “In February we began to really look at how we wanted to design our program and what we wanted to do with it,” she explains.

There was a very good reason for the delay. RBC is one of the biggest banks around, and ever since it made a very public commitment to investing for social and environmental return, the pressure has been on to prove that this was a good move. RBC’s success (or failure) will inform the actions taken by other financial players and could have an important influence on the mainstream acceptance of impact investing. RBC is keenly aware of this fact, and the burden of responsibility has been a challenge.

“The pressure is to make sure we do this right,” says Sandra. “We’ve been second-guessing ourselves in trying to strike the right balance.”

Doing it well also means mastering the field; however, as RBC has discovered, no one has mastered impact investing yet.

“[Nobody] has a huge repository of information, so we’re always learning. Just when you’re about to set foot in one direction, new research comes out and makes you think [about a different way],” Sandra explains. “We really want to do this in a way that is very financially rigorous. I have a lot of respect for social entrepreneurs and philanthropists, but at the end of the day we’re a bank. I want to make sure that it’s clear that we haven’t abandoned the principles of good risk management and due diligence.”

It is perhaps for this reason that RBC’s Impact Fund is divided between investing directly (60 to 70%) and in existing funds (30 to 40%). There will be plenty of opportunities to conduct due diligence, too. Sandra mentions “a very robust pipeline—it’s like sipping from a firehouse at times,” she says. “Investments will be made in water, energy and employment (both among the hard-to-employ and youth).”

We asked Sandra some questions about how RBC will measure their impact, where she sees the market going and why RBC should be named “Canada’s Most Promising New Financial Player” in social finance. Here’s what she had to say.

The theme of the 2012 Social Finance Forum is “Measuring up.” How will RBC measure their impact and determine how good deals measure up?

“We really want to make a mark in measuring return. It’s a bit squishy,” says Sandra with determination. “A way to quell skepticism is to be able to say, with some rigour, that we are tracking impact.”

What’s next for impact investing in Canada?

Sandra thinks that other financial institutions will almost certainly make announcements and possibly raise the bar. The nature of those announcements will be much more interesting, though. While RBC has a relatively broad focus, the future will see a more sophisticated market where different investors may choose specific areas of focus—whether that’s aboriginal investments or mental health. As a greater understanding of the Canadian landscape develops, it will become clear where the best opportunities for blended value lie.

As a leader in the mainstream financial sector already, what’s the case for RBC as the “Most Promising New Financial Player” in impact investing in Canada?

As one may suspect, the answer has to do with size. Sandra is excited by huge buy-in from all across the organization, especially from the top leadership.

“Our CEO is really into this, and the board of directors is pumped,” she says.

Having a huge number of employees spread out across the country—“people who know how to deal with small business and what to look for,” explains Sandra—is clearly an advantage, although it might be challenging to effectively tap into that local knowledge. It also helps that RBC has been doing environmental risk management for over two decades, so there are many employees who can play a role and who are putting their hands up.

“We have a lot of reasons we can succeed, and I want to demonstrate that. I want to demystify and de-risk this for the rest of corporate Canada and say: ‘You know what, you can do this.’”

The Awards

The Social Finance Awards is an annual award series hosted by SocialFinance.ca. The awards are presented to leaders who are playing a pivotal role in catalyzing the Canadian social finance marketplace.
The awards were conceptualized to showcase and celebrate the efforts that individuals and organizations are making to mobilize private capital for public good. Too often these efforts go unnoticed, and there exists an opportunity to inspire action in this field by highlighting the stories of these leaders.